Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 001-9383
WESTAMERICA BANCORPORATION
(Exact Name of Registrant as Specified in its Charter)
CALIFORNIA 94-2156203
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1108 Fifth Avenue, San Rafael, California 94901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (707) 863-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See
definitions of "large accelerated filer," "accelerated filer," and
"smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [ X ] Accelerated Filer [ ]
Non-Accelerated Filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes [ ] No [ x ]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Title of Class Shares Outstanding as of July 28, 2008
Common Stock, 28,961,632
No Par Value
Page 2
TABLE OF CONTENTS
Page
-----
Forward Looking Statements 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements 3
Notes to Unaudited Condensed Consolidated Financial Statements 7
Financial Summary 12
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 31
Item 4 - Controls and Procedures 31
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 32
Item 1A - Risk Factors 32
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 32
Item 3 - Defaults upon Senior Securities 33
Item 4 - Submission of Matters to a Vote of Security Holders 33
Item 5 - Other Information 33
Item 6 - Exhibits 33
Signature 34
Exhibit Index 35
Exhibit 31.1 - Certification of Chief Executive Officer pursuant to
Securities Exchange Act Rule 13a-14(a)/15d-14(a) 36
Exhibit 31.2 - Certification of Chief Financial Officer pursuant to
Securities Exchange Act Rule 13a-14(a)/15d-14(a) 37
Exhibit 32.1 - Certification of Chief Executive Officer 38
Required by 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer 39
Required by 18 U.S.C. Section 1350
FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains forward-looking statements about Westamerica
Bancorporation for which it claims the protection of the safe harbor
provisions contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on Management's current knowledge
and belief and include information concerning the Company's possible or
assumed future financial condition and results of operations. A number of
factors, some of which are beyond the Company's ability to predict or control,
could cause future results to differ materially from those contemplated. These
factors include but are not limited to (1) a slowdown in the national and
California economies; (2) fluctuations in asset prices including, but not
limited to, stocks, bonds, real estate, and commodities; (3) economic
uncertainty created by terrorist threats and attacks on the United States, the
actions taken in response, and the uncertain effect of these events on the
national and regional economies; (4) changes in the interest rate environment;
(5) changes in the regulatory environment; (6) significantly increasing
competitive pressure in the banking industry; (7) operational risks including
data processing system failures or fraud; (8) the effect of acquisitions and
integration of acquired businesses; (9) volatility of rate sensitive deposits
and investments; (10) asset/liability management risks and liquidity risks;
(11) changes in liquidity levels in capital markets; and (12) changes in the
securities markets. The reader is directed to the Company's annual report on
Form 10-K for the year ended December 31, 2007, for further discussion of
factors which could affect the Company's business and cause actual results to
differ materially from those expressed in any forward-looking statement made
in this report. The Company undertakes no obligation to update any
forward-looking statements in this report.
Page 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTAMERICA BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
At June 30, At
--------------------------December 31,
2008 2007 2007
---------------------------------------
Assets:
Cash and cash equivalents $134,094 $164,065 $209,764
Money market assets 338 325 333
Investment securities available for sale 391,028 582,959 532,821
Investment securities held to maturity,
with market values of:
$975,245 at June 30, 2008 978,298
$1,085,464 at June 30, 2007 1,104,132
$1,049,422 at December 31, 2007 1,045,288
Loans, gross 2,431,011 2,521,738 2,502,976
Allowance for loan losses (50,964) (53,473) (52,506)
---------------------------------------
Loans, net of allowance for loan losses 2,380,047 2,468,265 2,450,470
Other real estate owned 920 613 613
Premises and equipment, net 27,460 29,169 28,380
Identifiable intangibles 16,784 20,215 18,429
Goodwill 121,719 121,719 121,719
Interest receivable and other assets 138,180 155,607 151,142
---------------------------------------
Total Assets $4,188,868 $4,647,069 $4,558,959
=======================================
Liabilities:
Deposits:
Noninterest bearing $1,195,004 $1,266,941 $1,245,500
Interest bearing:
Transaction 527,109 554,036 544,411
Savings 754,677 809,791 760,006
Time 686,702 704,264 714,873
---------------------------------------
Total deposits 3,163,492 3,335,032 3,264,790
Short-term borrowed funds 514,131 809,261 798,599
Debt financing and notes payable 36,699 36,846 36,773
Liability for interest, taxes and
other expenses 64,101 57,948 64,194
---------------------------------------
Total Liabilities 3,778,423 4,239,087 4,164,356
---------------------------------------
Shareholders' Equity:
Authorized - 150,000 shares of common stock
Issued and outstanding:
28,889 at June 30, 2008 348,748
29,732 at June 30, 2007 335,300
29,018 at December 31, 2007 334,211
Deferred compensation 2,409 2,990 2,990
Accumulated other comprehensive income (loss) 1,074 (777) (4,520)
Retained earnings 58,214 70,469 61,922
---------------------------------------
Total Shareholders' Equity 410,445 407,982 394,603
---------------------------------------
Total Liabilities and
Shareholders' Equity $4,188,868 $4,647,069 $4,558,959
=======================================
See accompanying notes to unaudited condensed consolidated financial statements.
Page 4
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
----------------------------------------------------
Interest Income:
Loans $37,274 $40,727 $76,006 $80,894
Money market assets and funds sold 1 2 2 3
Investment securities available for sale
Taxable 2,312 3,919 5,424 7,989
Tax-exempt 2,630 2,922 5,320 5,974
Investment securities held to maturity
Taxable 4,827 5,987 10,010 12,255
Tax-exempt 5,611 5,784 11,287 11,599
----------------------------------------------------
Total interest income 52,655 59,341 108,049 118,714
----------------------------------------------------
Interest Expense:
Transaction deposits 347 528 799 1,051
Savings deposits 1,105 1,452 2,435 2,861
Time deposits 3,873 7,540 9,419 14,845
Short-term borrowed funds 2,483 8,718 7,405 17,014
Notes payable 578 578 1,156 1,156
----------------------------------------------------
Total interest expense 8,386 18,816 21,214 36,927
----------------------------------------------------
Net Interest Income 44,269 40,525 86,835 81,787
----------------------------------------------------
Provision for credit losses 600 75 1,200 150
----------------------------------------------------
Net Interest Income After
Provision For Credit Losses 43,669 40,450 85,635 81,637
----------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 7,529 7,716 14,825 15,244
Merchant credit card 2,712 2,768 5,292 5,217
Debit card 978 960 1,882 1,856
Trust fees 377 304 680 641
Financial services commissions 274 363 504 673
Mortgage banking 27 33 67 62
Other 2,438 2,556 4,765 5,463
Securities impairment (18,178) 0 (18,178) 0
Life insurance proceeds 0 0 0 822
Gain on sale of Visa common stock 0 0 5,698 0
----------------------------------------------------
Total Noninterest Income (3,843) 14,700 15,535 29,978
----------------------------------------------------
Noninterest Expense:
Salaries and related benefits 13,065 12,622 26,049 25,189
Occupancy 3,443 3,342 6,833 6,633
Data processing 2,105 1,543 4,225 3,066
Equipment 1,001 1,147 1,922 2,284
Courier service 824 857 1,653 1,705
Amortization of intangibles 788 893 1,646 1,868
Professional fees 683 409 1,219 904
Other 4,428 3,893 8,184 7,721
Visa litigation expense 0 0 (2,338) 0
----------------------------------------------------
Total Noninterest Expense 26,337 24,706 49,393 49,370
----------------------------------------------------
Income Before Income Taxes 13,489 30,444 51,777 62,245
Provision for income taxes 1,287 8,093 12,797 16,324
----------------------------------------------------
Net Income $12,202 $22,351 $38,980 $45,921
====================================================
Average Shares Outstanding 28,916 29,938 28,888 30,139
Diluted Average Shares Outstanding 29,392 30,365 29,301 30,593
Per Share Data:
Basic Earnings $0.42 $0.75 $1.35 $1.52
Diluted Earnings 0.42 0.74 1.33 1.50
Dividends Paid 0.35 0.34 0.69 0.68
See accompanying notes to unaudited condensed consolidated financial statements.
Page 5
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(In thousands)
(unaudited)
Accumulated
Other Compre-
Common Deferred hensive Retained
Shares Stock Compensation Income (Loss) Earnings Total
------------------------------------------------------------------------------
Balance, December 31, 2006 30,547 $341,529 $2,734 $1,850 $78,122 $424,235
Comprehensive income
Net income for the period 45,921 45,921
Other comprehensive income,
net of tax:
Net unrealized loss on securities
available for sale (2,646) (2,646)
Post-retirement benefit transition
obligation amortization 19 19
-------------
Total comprehensive income 43,294
Exercise of stock options 74 2,716 2,716
Stock option tax benefits 140 140
Restricted stock activity 12 316 256 572
Stock based compensation 939 939
Stock awarded to employees 3 126 126
Purchase and retirement of stock (904) (10,466) (33,012) (43,478)
Dividends (20,562) (20,562)
------------------------------------------------------------------------------
Balance, June 30, 2007 29,732 $335,300 $2,990 ($777) $70,469 $407,982
==============================================================================
Balance, December 31, 2007 29,018 $334,211 $2,990 ($4,520) $61,922 $394,603
Comprehensive income
Net income for the period 38,980 38,980
Other comprehensive income,
net of tax:
Net unrealized gain on securities
available for sale 5,576 5,576
Post-retirement benefit transition
obligation amortization 18 18
-------------
Total comprehensive income 44,574
Exercise of stock options 453 18,587 18,587
Stock option tax benefits 896 896
Restricted stock activity 11 1,261 (581) 680
Stock based compensation 672 672
Stock awarded to employees 3 142 142
Purchase and retirement of stock (596) (7,021) (22,697) (29,718)
Dividends (19,991) (19,991)
------------------------------------------------------------------------------
Balance, June 30, 2008 28,889 $348,748 $2,409 $1,074 $58,214 $410,445
==============================================================================
See accompanying notes to unaudited condensed consolidated financial statements.
Page 6
WESTAMERICA BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
For the six months
ended June 30,
--------------------------
2008 2007
--------------------------
Operating Activities:
Net income $38,980 $45,921
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,654 4,892
Provision for credit losses 1,200 150
Net deferral (amortization) of loan fees, net of cost 87 (741)
Decrease in interest income receivable 2,297 762
Increase in other assets (3,359) (6,667)
Decrease in income taxes payable (2,845) (953)
(Decrease) increase in interest expense payable (2,066) 27
Increase in other liabilities 3,278 3,120
Stock option compensation expense 672 939
Stock option tax benefits (896) (140)
Impairment of investment securities 18,178 0
Gain on sale of Visa common stock (5,698) 0
Writedown of equipment 9 7
Originations of loans for resale (877) (271)
Net proceeds from sale of loans originated for resale 884 212
Writedown on property acquired in satisfaction of debt 0 34
--------------------------
Net Cash Provided by Operating Activities 54,498 47,292
--------------------------
Investing Activities:
Net repayments of loans 68,824 8,788
Purchases of investment securities available for sale (5,566) (26,178)
Proceeds from maturity/calls of securities available for sale 139,285 55,189
Purchases of investment securities held to maturity 0 0
Proceeds from maturity/calls of securities held to maturity 66,990 60,960
Purchases of FRB/FHLB* securities (77) (73)
Proceeds from sale of FRB/FHLB* stock 11,325 73
Proceeds from sale of Visa common stock 5,698 0
Purchases of property, plant and equipment (581) (752)
--------------------------
Net Cash Provided by Investing Activities 285,898 98,007
--------------------------
Financing Activities:
Net decrease in deposits (101,298) (181,702)
Net (decrease) increase in short-term borrowings (284,468) 77,284
Repayments of notes payable (74) (74)
Exercise of stock options 18,587 2,716
Stock option tax benefits 896 140
Purchase and retirement of stock (29,718) (43,478)
Dividends paid (19,991) (20,562)
--------------------------
Net Cash Used in Financing Activities (416,066) (165,676)
--------------------------
Net Decrease In Cash and Cash Equivalents (75,670) (20,377)
Cash and Cash Equivalents at Beginning of Period 209,764 184,442
--------------------------
Cash and Cash Equivalents at End of Period $134,094 $164,065
==========================
Supplemental Disclosure of Noncash Activities:
Loans transferred to other real estate owned $307 $0
Unrealized gain (loss) on securities available for sale, net 5,576 (2,646)
Supplemental Disclosure of Cash Flow Activity:
Interest paid for the period $23,280 $36,955
Income tax payments for the period 15,642 17,263
See accompanying notes to unaudited condensed consolidated financial statements.
* Federal Reserve Bank/Federal Home Loan Bank ("FRB/FHLB")
Page 7
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. The results of operations reflect interim
adjustments, all of which are of a normal recurring nature and which, in the
opinion of Management, are necessary for a fair presentation of the results
for the interim periods presented. The interim results for the six months
ended June 30, 2008 and 2007 are not necessarily indicative of the results
expected for the full year. These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and accompanying notes as well as other information included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2007.
Note 2: Significant Accounting Policies.
Certain accounting policies underlying the preparation of these financial
statements require Management to make estimates and judgments. These estimates
and judgments may affect reported amounts of assets and liabilities, revenues
and expenses, and disclosures of contingent assets and liabilities. The most
significant of these involve the Allowance for Credit Losses, which is
discussed in Note 1 to the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2007.
On January 1, 2008, the Company adopted the following new accounting
pronouncements:
- FASB Statement No. 157 ("FAS 157") - Fair Value Measurements
- FASB Statement No. 159 ("FAS 159") - The Fair Value Option for Financial
Assets and Financial Liabilities -- Including an Amendment of FASB Statement
No. 115
The adoption of FAS 157 and FAS 159 did not have any affect on the Company's
financial statements at the date of adoption. For additional information, see
Note 3.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued FASB Statement No. 141 (revised 2007),
Business Combinations. This Statement replaces FASB Statement No. 141,
Business Combinations. This Statement retains the fundamental requirements in
Statement 141 that the acquisition method of accounting (which Statement 141
called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. This Statement also
retains the guidance in Statement 141 for identifying and recognizing
intangible assets separately from goodwill. This Statement requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions specified in the
Statement. That replaces Statement 141's cost-allocation process, which
required the cost of an acquisition to be allocated to the individual assets
acquired and liabilities assumed based on their estimated fair values.
Statement 141 required the acquirer to include the costs incurred to effect
the acquisition (acquisition-related costs) in the cost of the acquisition
that was allocated to the assets acquired and the liabilities assumed. This
Statement requires those costs to be recognized separately from the
acquisition. In addition, in accordance with Statement 141, restructuring
costs that the acquirer expected but was not obligated to incur were
recognized as if they were a liability assumed at the acquisition date. This
Statement requires the acquirer to recognize those costs separately from the
business combination. This Statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008. The
impact of this Statement on the Company's financial statements will be
contingent on the terms and conditions of future business combinations.
Page 8
In March 2008, the FASB issued FASB Statement No. 161, Disclosures about
Derivative Instruments and Hedging Activities-an amendment of FASB Statement
No. 133 ("FAS 161"). FAS 161 changes disclosure requirements for derivative
instruments and hedging activities. The Statement requires enhanced
disclosures about (a) how and why derivative instruments are used, (b) how
derivative and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect financial position, financial performance, and cash flows.
This Statement is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early adoption
permitted. The Company had no derivative instruments designated as hedges as
of June 30, 2008. The Company will adopt FAS 161 on January 1, 2009.
Note 3: Fair Values of Assets and Liabilities.
On January 1, 2008, the Company adopted the provisions of FAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities -- Including an
Amendment of FASB Statement No. 115. In accordance with FAS 159, the Company,
at its option, can value assets and liabilities at fair value on an
instrument-by-instrument basis with changes in fair value recorded in
earnings. The Company elected not to value any additional assets or
liabilities at fair value in accordance with FAS 159.
On January 1, 2008, the Company also adopted the provisions of FAS 157, Fair
Value Measurements, with the exception of the requirements that pertain to
nonfinancial assets and nonfinancial liabilities covered by FASB Staff
Position (FSP) No. FAS 157-2. FAS 157 defines fair value, establishes a
consistent framework for measuring fair value and expands disclosure
requirements for fair value measurements. FSP FAS 157-2 delays the effective
date of the FAS 157 requirements for nonfinancial assets and nonfinancial
liabilities to fiscal years beginning after November 15, 2008. Other real
estate owned is an example of a nonfinancial asset that the Company will be
required to measure at fair value on a non-recurring basis in accordance with
generally accepted accounting principles.
Fair Value Hierarchy
In accordance with FAS 157 the Company groups its assets and liabilities
measured at fair value in three levels, based on the markets in which the
assets and liabilities are traded and the reliability of the assumptions used
to determine fair value. These levels are:
* Level 1 - Valuation is based upon quoted prices for identical instruments
traded in active exchange markets, such as the New York Stock Exchange. Level
1 also includes U.S. Treasury and federal agency securities, which are traded
by dealers or brokers in active markets. Valuations are obtained from readily
available pricing sources for market transactions involving identical assets
or liabilities.
* Level 2 - Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques for which all
significant assumptions are observable in the market. Level 2 securities
include mortgage-backed securities, municipal bonds and collateralized
mortgage obligations.
* Level 3 - Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable
assumptions reflect the Company's estimates of assumptions that market
participants would use in pricing the asset or liability. Valuation techniques
include use of option pricing models, discounted cash flow models and similar
techniques.
The table below presents the balances of available for sale securities
measured at fair value on a recurring basis. (in thousands)
At June 30, 2008
-------------------------------------------------
Total Level 1 Level 2 Level 3
-------------------------------------------------
$391,028 $92,731 $298,297 $0
=================================================
The Company does not record loans at fair value with the exception of impaired
loans which are measured for impairment in accordance with SFAS 114,
Accounting by Creditors for Impairment of a Loan, ("SFAS 114"). Under SFAS
114, loans measured for impairment based on the fair value of collateral or
observable market prices are within the scope of SFAS 157. Loans measured at
fair value on a non-recurring basis were measured for impairment by valuing
the underlying collateral based on third-party appraisals which are level 3
fair value measurements. At June 30, 2008, impaired loans totaled $8.3
million.
Note 4: Investments
The amortized cost and estimated market value of the available for sale
investment securities portfolio as of June 30, 2008 follows:
Amortized Estimated
Cost Market Value
--------------------------
Securities of U.S. Treasury and federal agencies $44,045 $44,195
Mortgage-backed securities 116,014 113,711
Obligations of states and political subdivisions 170,185 173,994
Asset-backed securities 9,999 8,702
FHLMC and FNMA stock 44,533 44,533
Other securities 3,812 5,893
--------------------------
Total $388,588 $391,028
==========================
The amortized cost and estimated market value of the held to maturity
investment securities portfolio as of June 30, 2008 follows:
Amortized Estimated
Cost Market Value
--------------------------
Securities of U.S. federal agencies $110,000 $111,226
Mortgage-backed securities 316,547 310,883
Obligations of states and political subdivisions 551,751 553,136
--------------------------
Total $978,298 $975,245
==========================
Page 9
Note 5: Loans
A summary of the major categories of loans outstanding is shown in the
following table.
At June 30, At
--------------------------December 31,
2008 2007 2007
---------------------------------------
Real Estate - commercial $841,044 $876,713 $856,581
Real Estate - construction 70,651 79,876 97,464
Real Estate - residential 463,307 489,838 484,549
---------------------------------------
Total Real Estate loans 1,375,002 1,446,427 1,438,594
Commercial 539,075 551,730 532,650
Installment and personal 516,934 523,581 531,732
---------------------------------------
Gross loans 2,431,011 2,521,738 2,502,976
Allowance for loan losses (50,964) (53,473) (52,506)
---------------------------------------
Net loans $2,380,047 $2,468,265 $2,450,470
=======================================
There were no loans held for sale at June 30, 2008, June 30, 2007 and December
31, 2007.
Note 6: Goodwill and Other Intangible Assets
The Company has recorded goodwill and other identifiable intangibles
associated with purchase business combinations. Goodwill is not amortized, but
is periodically evaluated for impairment. The Company did not recognize
impairment during the six months ended June 30, 2008 and June 30, 2007.
Identifiable intangibles are amortized to their estimated residual values over
their expected useful lives. Such lives and residual values are also
periodically reassessed to determine if any amortization period adjustments
are indicated. During the second quarter of 2008 and second quarter of 2007,
no such adjustments were recorded.
The changes in the carrying value of goodwill were ($ in thousands):
December 31, 2006 $121,719
--
-------------
June 30, 2007 $121,719
=============
December 31, 2007 $121,719
--
-------------
June 30, 2008 $121,719
=============
The gross carrying amount of intangible assets and accumulated amortization
was ($ in thousands):
June 30,
----------------------------------------------------
2008 2007
----------------------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
----------------------------------------------------
Core Deposit Intangibles $24,383 ($12,426) $24,383 ($10,339)
Merchant Draft Processing Intangible 10,300 (5,473) 10,300 (4,129)
----------------------------------------------------
Total Intangible Assets $34,683 ($17,899) $34,683 ($14,468)
====================================================
As of June 30, 2008, the current year and estimated future amortization
expense for intangible assets was ($ in thousands):
Merchant
Core Draft
Deposit Processing
Intangibles Intangible Total
---------------------------------------
Six months ended June 30, 2008 (actual) $1,022 $624 $1,646
Estimate for year ended December 31,
2008 2,021 1,200 3,221
2009 1,859 962 2,821
2010 1,635 774 2,409
2011 1,386 624 2,010
2012 1,230 500 1,730
2013 964 400 1,364
Page 10
Note 7: Post Retirement Benefits
The Company offers a continuation of group insurance coverage to qualifying
employees electing early retirement, for the period from the date of
retirement until age 65. For eligible employees the Company pays a portion of
these early retirees' insurance premiums. The Company reimburses a portion of
Medicare Part B premiums for all qualifying retirees over age 65 and their
qualified spouses. Eligibility for post-retirement medical benefits is based
on age and years of service, and restricted to employees hired prior to
February 1, 2006. The Company uses an actuarial-based accrual method of
accounting for post-retirement benefits.
The following table sets forth the net periodic post-retirement benefit costs
(in thousands):
For the six months ended
June 30,
--------------------------
2008 2007
--------------------------
Service cost ($200) $8
Interest cost 132 132
Amortization of unrecognized
transition obligation 30 30
--------------------------
Net periodic cost ($38) $170
==========================
The Company does not fund plan assets for any post-retirement benefit plans.
Note 8: Contingent Liabilities
In accordance with Visa's by-laws, the Company and other Visa U.S.A. member
banks are obligated to share in Visa's litigation obligations which existed at
the time of Visa's restructuring transactions. Accordingly, in the fourth
quarter 2007, the Company recorded estimated litigation liabilities and
related litigation expense related to Visa Inc. in the amount of $2,338
thousand. During the first quarter 2008, in accordance with the determination
of Visa Inc.'s Litigation Committee, Visa Inc. funded its litigation escrow
account with $3 billion of net proceeds from the Visa Inc. initial public
offering. This escrow account will be used to make payments related to certain
covered Visa litigation. At the time of escrow funding, the Company reduced
its litigation liability with a corresponding reversal of litigation expense
of $2,338 thousand representing the Company's portion of the escrow account
limited by the amount previously recognized as an expense.
We issue standby letters of credit, which include performance and financial
guarantees, for customers in connection with contracts between the customers
and third parties. Standby letters of credit commit the Company to make
payments on behalf of customers when certain specified future events occur.
Standby letters of credit are primarily issued to support customers'
short-term financing requirements and must meet the Company's normal credit
policies and collateral requirements. Standby letters of credit outstanding
totaled $32.0 million and $33.0 million at June 30, 2008 and December 31,
2007, respectively. We also had commitments for commercial and similar letters
of credit of $68 thousand and $613 thousand at June 30, 2008 and December 31,
2007, respectively.
Page 11
Note 9: Earnings Per Common Share
The table below shows earnings per common share and diluted earnings per
common share. Basic earnings per share are computed by dividing net income by
the average number of shares outstanding during the period. Diluted earnings
per share are computed by dividing net income by the average number of shares
outstanding during the period plus the impact of common stock equivalents.
For the For the
three months six months
ended June 30, ended June 30,
(In thousands, except per share data) 2008 2007 2008 2007
----------------------------------------------------
Weighted average number of common
shares outstanding - basic 28,916 29,938 28,888 30,139
Add exercise of options reduced by the
number of shares that could have been
purchased with the proceeds of such
exercise 476 427 413 454
----------------------------------------------------
Weighted average number of common
shares outstanding - diluted 29,392 30,365 29,301 30,593
====================================================
Net income $12,202 $22,351 $38,980 $45,921
Basic earnings per share $0.42 $0.75 $1.35 $1.52
Diluted earnings per share $0.42 $0.74 $1.33 $1.50
For the three months and six months ended June 30, 2008, all options
outstanding were included in the computation of diluted net income per share
because the fair value of the stock exceeded the option exercise price.
However, for the three months and six months ended June 30, 2007, options to
purchase 901 thousand and 911 thousand shares of common stock, respectively,
were not included in the computation of diluted net income per share because
the option exercise price exceeded the fair value of the stock such that their
inclusion would have had an anti-dilutive effect.
Page 12
WESTAMERICA BANCORPORATION
Financial Summary
(Dollars in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------
Net Interest Income (FTE)** $49,731 $46,059 $97,713 $92,973
Provision for Loan Losses (600) (75) (1,200) (150)
Noninterest Income:
Gain on sale of Visa common stock 0 0 5,698 0
Securities impairment (18,178) 0 (18,178) 0
Life insurance proceeds 0 0 0 822
Deposit service charges and other 14,335 14,700 28,015 29,156
----------------------------------------------------
Total Noninterest Income (3,843) 14,700 15,535 29,978
Noninterest Expense:
Visa litigation 0 0 2,338 0
Other (26,337) (24,706) (51,731) (49,370)
----------------------------------------------------
Total Noninterest Expense (26,337) (24,706) (49,393) (49,370)
----------------------------------------------------
Income Before Income Taxes (FTE)** 18,951 35,978 62,655 73,431
Provision for Income Taxes (FTE)** (6,749) (13,627) (23,675) (27,510)
----------------------------------------------------
Net Income $12,202 $22,351 $38,980 $45,921
====================================================
Average Shares Outstanding 28,916 29,938 28,888 30,139
Diluted Average Shares Outstanding 29,392 30,365 29,301 30,593
Shares Outstanding at Period End 28,889 29,732 28,889 29,732
As Reported:
Basic Earnings Per Share $0.42 $0.75 $1.35 $1.52
Diluted Earnings Per Share $0.42 $0.74 $1.33 $1.50
Return On Assets 1.15% 1.92% 1.80% 1.97%
Return On Equity 11.90% 21.94% 19.44% 22.49%
Net Interest Margin (FTE)** 5.16% 4.36% 4.97% 4.38%
Net Loan Losses to Average Loans 0.31% 0.24% 0.22% 0.16%
Efficiency Ratio* 57.4% 40.7% 43.6% 40.2%
Average Balances:
Total Assets $4,257,325 $4,668,627 $4,345,630 $4,691,007
Earning Assets 3,865,110 4,245,342 3,946,665 4,266,357
Total Loans, Gross 2,439,062 2,516,114 2,458,364 2,518,085
Total Deposits 3,183,812 3,377,413 3,198,079 3,402,548
Shareholders' Equity 412,263 408,564 403,268 411,791
Balances at Period End:
Total Assets $4,188,868 $4,647,069
Earning Assets 3,800,675 4,209,154
Total Loans, Gross 2,431,011 2,521,738
Total Deposits 3,163,492 3,335,032
Shareholders' Equity 410,445 407,982
Financial Ratios at Period End:
Allowance for Loan Losses to Loans 2.10% 2.12%
Book Value Per Share $14.21 $13.72
Equity to Assets 9.80% 8.78%
Total Capital to Risk Adjusted Assets 11.51% 10.83%
Dividends Paid Per Share $0.35 $0.34 $0.69 $0.68
Dividend Payout Ratio 83% 46% 52% 45%
The above financial summary has been derived from the Company's unaudited
consolidated financial statements. This information should be read in
conjunction with those statements, notes and the other information included
elsewhere herein. Percentages under the heading "As Reported" are annualized
with the exception of the efficiency ratio.
* The efficiency ratio is defined as noninterest expense divided by total
revenue (net interest income on a tax-equivalent basis and noninterest
income).
** Yields on securities and certain loans have been adjusted upward to a
"fully taxable equivalent" ("FTE") basis in order to reflect the effect of
income which is exempt from federal income taxation at the current statutory
tax rate.
Page 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Westamerica Bancorporation and subsidiaries (the "Company") reported second
quarter 2008 net income of $12.2 million or $0.42 diluted earnings per share.
These results compare to net income of $22.4 million or $0.74 diluted earnings
per share for the same period of 2007. In the second quarter of 2008, the
Company recognized a $10.5 million after-tax or $0.35 diluted earnings per
share securities impairment of Federal Home Loan Mortgage Corporation
("FHLMC") and Federal National Mortgage Association ("FNMA") preferred stock
held in its available for sale investment portfolio.
On a year-to-date basis, the Company reported net income for the six months
ended June 30, 2008 of $39.0 million or $1.33 diluted earnings per share,
compared with $45.9 million or $1.50 diluted earnings per share for the same
period of 2007. The first half of 2008 included the $10.5 million after-tax
impairment in the value of FHLMC and FNMA preferred stock and $4.7 million in
after-tax benefits from Visa's initial public offering which combined to
reduce net income by $5.8 million and earnings per diluted share by $0.20. The
first half of 2007 included $822 thousand in tax-exempt company owned life
insurance proceeds, representing $0.02 diluted earnings per share.
Following is a summary of the components of net income for the periods indicated
(dollars in thousands except per share data):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------
Net interest income (FTE) $49,731 $46,059 $97,713 $92,973
Provision for loan losses (600) (75) (1,200) (150)
Noninterest income (3,843) 14,700 15,535 29,978
Noninterest expense (26,337) (24,706) (49,393) (49,370)
Provision for income taxes (FTE) (6,749) (13,627) (23,675) (27,510)
----------------------------------------------------
Net income $12,202 $22,351 $38,980 $45,921
====================================================
Average diluted shares 29,392 30,365 29,301 30,593
Diluted earnings per share $0.42 $0.74 $1.33 $1.50
Average total assets $4,257,325 $4,668,627 $4,345,630 $4,691,007
Net income (annualized) to average total assets 1.15% 1.92% 1.80% 1.97%
Net income for the second quarter of 2008 was $10.1 million less than the same
quarter of 2007, reflecting a $10.5 million after-tax FHLMC and FNMA preferred
stock impairment charge in the second quarter of 2008. Net interest income
(FTE) increased $3.7 million or 8.0%, the net result of lower funding costs,
partially offset by lower average earning assets and declining yields on
loans. The provision for loan losses increased $525 thousand, reflecting
Management's assessment of credit risk and the level of the allowance for loan
losses. Noninterest income fell $18.5 million primarily due to the above
impairment charge. Noninterest expense increased $1.6 million or 6.6% mostly
due to higher personnel and data processing costs. The provision for income
taxes (FTE) decreased $6.9 million mostly due to the $7.7 million tax benefit
of the impairment charge.
Comparing the first six months of 2008 to the prior year, net income decreased
$6.9 million or 15.1%, due to a charge for the impairment of FHLMC and FNMA
preferred stock and higher loan loss provision, partially offset by higher net
interest income (FTE), a gain on sale of VISA common stock and lower tax
provision (FTE). The higher net interest income (FTE) was mainly caused by
lower funding costs, partially offset by a lower volume of average
interest-earning assets and lower yields on loans. The provision for loan
losses increased $1.1 million to reflect Management's assessment of credit
risk and the level of the allowance for loan losses. Noninterest income
declined $14.4 million mainly due to the above impairment charge on FHLMC and
FNMA preferred stock, partially offset by the above gain on sale of VISA
common stock. Noninterest expense increased $23 thousand, primarily the net
result of higher data processing costs, partly offset by the reversal of a
$2.3 million accrual for Visa related litigation. The income tax provision
(FTE) decreased $3.8 million or 13.9% largely due to the above tax benefit
from the impairment charge, partially offset by an increase related to the
gain on sale of Visa common stock.
Page 14
Net Interest Income
The Company's primary source of revenue is net interest income, or the
difference between interest income earned on loans and investments and
interest expense paid on interest-bearing deposits and borrowings. Following
is a summary of the components of net interest income for the periods
indicated (dollars in thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------
Interest and fee income $52,655 $59,341 $108,049 $118,714
Interest expense (8,386) (18,816) (21,214) (36,927)
FTE adjustment 5,462 5,534 10,878 11,186
----------------------------------------------------
Net interest income (FTE) $49,731 $46,059 $97,713 $92,973
====================================================
Average earning assets $3,865,110 $4,245,342 $3,946,665 $4,266,357
Net interest margin (FTE) 5.16% 4.36% 4.97% 4.38%
The Company's net interest margin has expanded during the three and six months
ended June 30, 2008 compared to the respective periods in 2007. The Federal
Reserve's Open Market Committee (FOMC) reduced the target federal funds rate
from 5.25 percent in August 2007 to 2.00 percent in April 2008 in seven
increments. As a result, short-term interest rates declined and the Company
managed to reduce the interest rates paid on deposits and other
interest-bearing liabilities during 2008 compared to respective periods in
2007. During this period, the Company's loan and investment yields were less
sensitive to changes in interest rates resulting in a lesser reduction in such
yields compared to the rates paid on deposits and other funding sources.
Offsetting some of the benefit of the expanding margin was the reduction in
the level of average interest-earning assets in 2008 relative to 2007.
Net interest income (FTE) rose during the second quarter of 2008 by $3.7
million or 8.0% from the same period in 2007 to $49.7 million, mainly due to
lower rates on average interest- bearing liabilities (down 126 basis points
("bp")) and lower average balances of those liabilities (down $336 million),
partly offset by lower average earning assets (down $380 million) and lower
yields on loans (down 35 bp).
Comparing the first six months of 2008 with the same period of 2007, net
interest income (FTE) increased $4.7 million or 5.1%, primarily due to lower
rates paid on interest-bearing liabilities (down 93 bp) and a lower average
volume of those liabilities (down $263 million), partially offset by lower
average earning assets (down $320 million) and lower yields on loans (down 26
bp).
Interest and Fee Income
Interest and fee income (FTE) for the second quarter of 2008 decreased $6.8
million or 10.4% from the same period in 2007. The decline was caused by lower
average balances of earning assets (down $380 million) and lower yields on
loans (down 35 bp).
In Management's opinion, current economic conditions are not conducive for
generating profitable loan growth. Recent downward pressure on real estate
values create a cautious view toward real estate lending, and economic
pressure on consumers has reduced demand for automobile and other consumer
loans. Additionally, yields available on the highest quality investment
securities do not offer an adequate profit margin over the cost of funding. As
a result, the Company has not taken an aggressive posture relative to current
loan and investment portfolio growth.
The decrease in the average earning assets in the second quarter of 2008
compared with the same period in 2007 was substantially attributable to a $303
million decline in the average investment portfolio: U.S. government sponsored
entity obligations (down $146 million), mortgage backed securities and
collateralized mortgage obligations (down $109 million), municipal securities
(down $40 million) and corporate and other securities (down $11 million).
Average total loans were lower by $77 million in the second quarter of 2008
compared with the same period in 2007 primarily due to decreases in the
average balances of commercial real estate loans (down $40 million),
residential real estate loans (down $27 million) and tax-exempt commercial
loans (down $15 million), partially offset by increases in the average
balances of consumer loans (up $7 million) and construction loans (up $6
million).
The average yield on the Company's earning assets decreased from 6.12% in the
second quarter of 2007 to 6.03% in the same period in 2008. The composite
yield on loans fell 35 bp to 6.34% due to decreases in yields on taxable
commercial loans (down 133 bp), real estate construction loans (down 450 bp),
consumer loans (down 29 bp) and commercial real estate loans (down 3 bp),
partially offset by higher yields on tax-exempt commercial loans (up 19 bp)
and residential real estate loans (up 9 bp). Real estate construction loans
and commercial lines of credit have variable interest rates based on the prime
lending rate. The prime lending rate averaged 8.25 percent in the second
quarter 2007 compared to 5.08 percent in the second quarter 2008, reducing the
yields earned on real estate construction loans and commercial lines of
credit. Additionally, a $10.3 million construction loan relationship was
placed on nonaccrual status during the second quarter with $203 thousand in
accrued interest reversed from interest income, which further reduced the
yield earned on construction loans during the period. Conversely, a commercial
Page 15
loan on nonaccrual status as of March 31, 2008 was returned to accrual status
upon receipt of all past due loan payments including $160 thousand in interest
recorded as interest income, which increased the yield on commercial loans
during the period. For more information regarding nonaccrual loans and
interest income recorded thereon, see the section entitled Nonperforming Loans
and Other Real Estate Owned. The investment portfolio yield increased 20 bp to
5.51%, mainly due to higher yields on mortgage backed securities and
collateralized mortgage obligations (up 7 bp), municipal securities (up 5 bp)
and U.S. government sponsored entity obligations (up 3 bp), partially offset
by corporate and other securities (down 17 bp). As investment portfolio
volumes have declined over the past year, municipal security volumes have
declined at a slower rate than the remainder of the investment portfolio. As a
result, municipal securities represented 51 percent of total average
investment security volumes during the second quarter 2008, compared to 44
percent during the second quarter 2007. This migration in the composition of
the investment portfolio has improved the overall yield of the investment
portfolio since municipal security yields exceed the yield of the overall
investment portfolio.
Comparing the first half of 2008 with the corresponding period a year ago,
interest and fee income (FTE) was down $11.0 million or 8.4%. The decrease
largely resulted from lower average balances of earning assets and lower
yields on loans.
Average earning assets decreased $320 million or 7.5% for the first half of
2008 compared with the same period of 2007, due to a $260 million decline in
the investment portfolio and a $60 million decrease in the loan portfolio.
Lower average investment balances were largely attributable to mortgage backed
securities and collateralized mortgage obligations (down $110 million), U.S.
government sponsored obligations (down $107 million), municipal securities
(down $37 million) and corporate and other securities (down $10 million). The
loan portfolio decline was primarily due to decreases in the average balances
of commercial real estate loans (down $45 million), residential real estate
loans (down $26 million), tax-exempt commercial loans (down $16 million) and
taxable commercial loans (down $6 million), partly offset by increases in the
average balance of consumer loans (up $20 million) and real estate
construction loans (up $14 million).
The average yield on earning assets for the first half of 2008 was 6.05%
compared with 6.12% in the corresponding period of 2007. The loan portfolio
yield for the first half of 2008 compared with the same period of 2007 was
lower by 26 bp, primarily due to decreases in yields on taxable commercial
loans (down 113 bp), construction loans (down 293 bp), consumer loans (down 17
bp) and commercial real estate loans (down 7 bp), partially offset by
commercial tax-exempt loans (up 9 bp) and residential real estate loans (up 8
bp). The investment portfolio yield rose by 12 bp. The increase resulted
mostly from higher yields on mortgage backed securities and collateralized
mortgage obligations (up 8 bp), partially offset by U.S. government sponsored
obligations (down 3 bp) and corporate and other securities (down 42 bp).
Interest Expense
Interest expense in the second quarter of 2008 decreased $10.4 million
compared with the same period in 2007. The decrease was attributable to lower
rates paid on the interest- bearing liabilities and lower average balances of
those liabilities.
The average rate paid on interest-bearing liabilities decreased from 2.56% in
the second quarter of 2007 to 1.30% in the same quarter of 2008. Rates paid on
most interest-bearing liabilities moved with general market conditions. Rates
on deposits decreased 74 bp to 1.07% primarily due to decreases in rates paid
on CDs over $100 thousand (down 262 bp), preferred money market savings (down
111 bp), retail CDs (down 49 bp) and money market checking accounts (down 11
bp). Rates on short-term borrowings also decreased 266 bp mostly due to lower
rates on federal funds purchased (down 313 bp) and line of credit and
repurchase facilities (down 252 bp).
Interest-bearing liabilities declined $336 million or 11.5% for the second
quarter of 2008 over the same period of 2007. Most categories of deposits
declined including money market savings (down $73 million), money market
checking accounts (down $30 million), regular savings (down $22 million) and
retail CDs (down $19 million). The decline was partially offset by a $34
million increase in preferred money market savings. Short-term borrowings
declined $222 million primarily due to a $210 million decrease in federal
funds purchased.
Comparing the first half of 2008 to the corresponding period of 2007, interest
expense decreased $15.7 million, due to lower rates paid on interest-bearing
liabilities and a decline in such liabilities.
Rates paid on liabilities averaged 1.58% during the first six months of 2008
compared to 2.51% in the first six months of 2007. The average rate on
short-term borrowings fell 209 bp to 2.29%, mainly due to declines on rates
paid on federal funds purchased (down 250 bp) and line of credit and
repurchase facilities (down 148 bp). Rates on deposits were also lower (down
50 bp). CDs over $100 thousand declined 205 bp and retail CDs decreased by 22
bp. Preferred money market savings decreased 79 bp.
Interest-bearing liabilities declined $263 million or 8.9% over the first half
of 2007 mainly due to decreases in the average balances of federal funds
purchased (down $121 million), money market savings (down $86 million), money
market checking accounts (down $35 million), regular savings (down $28
million), retail CDs (down $20 million) and line of credit and repurchase
facilities (down $16 million).
Page 16
In all periods, the Company has focused its sales efforts on building the
balances of more profitable, noninterest bearing and lower-cost transaction
accounts in order to minimize the cost of funds.
Net Interest Margin (FTE)
The following summarizes the components of the Company's net interest margin
for the periods indicated:
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------
Yield on earning assets (FTE) 6.03% 6.12% 6.05% 6.12%
Rate paid on interest-bearing
liabilities 1.30% 2.56% 1.58% 2.51%
----------------------------------------------------
Net interest spread (FTE) 4.73% 3.56% 4.47% 3.61%
Impact of all other net
noninterest bearing funds 0.43% 0.80% 0.50% 0.77%
----------------------------------------------------
Net interest margin (FTE) 5.16% 4.36% 4.97% 4.38%
====================================================
During the second quarter of 2008, the net interest margin (FTE) increased 80
bp compared with the same period in 2007. Rates paid on interest-bearing
liabilities declined faster than yields on earning assets (FTE), resulting in
a 117 bp increase in net interest spread. The increase in the net interest
spread was partially reduced by the lower net interest margin contribution of
noninterest bearing funding sources. The margin contribution of noninterest
bearing funds decreased 37 bp because of the lower market rates of interest at
which they could be invested.
Similarly, the net interest margin (FTE) in the first six months of 2008 rose
by 59 bp when compared with the corresponding period of 2007. Earning asset
yields decreased 7 bp while the cost of interest-bearing liabilities declined
by 93 bp, resulting in an 86 bp increase in the net interest spread. The 27 bp
decrease in noninterest bearing funding sources lowered the increase in the
net interest margin.
Page 17
Summary of Average Balances, Yields/Rates and Interest Differential
The following tables present, for the periods indicated, information regarding
the Company's consolidated average assets, liabilities and shareholders'
equity, the amount of interest income from average earning assets and the
resulting yields, and the amount of interest expense paid on interest-bearing
liabilities. Average loan balances include nonperforming loans. Interest
income includes proceeds from loans on nonaccrual status only to the extent
cash payments have been received and applied as interest income. Yields on
securities and certain loans have been adjusted upward to reflect the effect
of income which is exempt from federal income taxation at the current
statutory tax rate (FTE) (dollars in thousands).
For the three months ended
June 30, 2008
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $1,111 $1 0.36%
Investment securities:
Available for sale
Taxable 218,242 2,312 4.24%
Tax-exempt (1) 214,948 3,894 7.25%
Held to maturity
Taxable 438,906 4,827 4.40%
Tax-exempt (1) 552,841 8,614 6.23%
Loans:
Commercial:
Taxable 316,349 5,749 7.31%
Tax-exempt (1) 213,078 3,507 6.62%
Commercial real estate 843,793 14,972 7.14%
Real estate construction 79,655 1,108 5.59%
Real estate residential 469,010 5,660 4.83%
Consumer 517,177 7,473 5.81%
--------------------------
Total loans (1) 2,439,062 38,469 6.34%
--------------------------
Total earning assets (1) 3,865,110 58,117 6.03%
Other assets 392,215
-------------
Total assets $4,257,325
=============
Liabilities and shareholders' equity
Deposits:
Noninterest bearing demand $1,186,921 $-- --
Savings and interest-bearing
transaction 1,311,149 1,452 0.45%
Time less than $100,000 192,810 1,354 2.82%
Time $100,000 or more 492,932 2,519 2.06%
--------------------------
Total interest-bearing deposits 1,996,891 5,325 1.07%
Short-term borrowed funds 556,794 2,483 1.77%
Debt financing and notes payable 36,721 578 6.30%
--------------------------
Total interest-bearing liabilities 2,590,406 8,386 1.30%
Other liabilities 67,735
Shareholders' equity 412,263
-------------
Total liabilities and shareholders' equity $4,257,325
=============
Net interest spread (1) (2) 4.73%
Net interest income and interest margin (1) (3) $49,731 5.16%
==========================
(1) Interest and rates calculated on a fully taxable equivalent basis using
the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on earning assets
minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by calculating the difference between
interest income and expense (annualized), divided by the average balance of
earning assets.
Page 18
For the three months ended
June 30, 2007
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $459 $2 1.75%
Investment securities:
Available for sale
Taxable 366,904 3,919 4.27%
Tax-exempt (1) 235,763 4,259 7.23%
Held to maturity
Taxable 555,685 5,987 4.31%
Tax-exempt (1) 570,417 8,770 6.15%
Loans:
Commercial:
Taxable 324,720 6,993 8.64%
Tax-exempt (1) 228,344 3,662 6.43%
Commercial real estate 883,942 15,804 7.17%
Real estate construction 73,206 1,841 10.09%
Real estate residential 496,012 5,881 4.74%
Consumer 509,890 7,757 6.10%
--------------------------
Total loans (1) 2,516,114 41,938 6.69%
--------------------------
Total earning assets (1) 4,245,342 64,875 6.12%
Other assets 423,285
-------------
Total assets $4,668,627
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,267,032 $-- --
Savings and interest-bearing
transaction 1,401,854 1,980 0.57%
Time less than $100,000 212,189 1,751 3.31%
Time $100,000 or more 496,338 5,789 4.68%
--------------------------
Total interest-bearing deposits 2,110,381 9,520 1.81%
Short-term borrowed funds 778,841 8,718 4.43%
Debt financing and notes payable 36,868 578 6.27%
--------------------------
Total interest-bearing liabilities 2,926,090 18,816 2.56%
Other liabilities 66,941
Shareholders' equity 408,564
-------------
Total liabilities and shareholders' equity $4,668,627
=============
Net interest spread (1) (2) 3.56%
Net interest income and interest margin (1) (3) $46,059 4.36%
==========================
(1) Interest and rates calculated on a fully taxable equivalent basis using
the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on earning assets
minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by calculating the difference between
interest income and expense (annualized), divided by the average balance of
earning assets.
Page 19
For the six months ended
June 30, 2008
---------------------------------------
Interest Rates
Average income/ earned/
Balance expense paid
---------------------------------------
Assets:
Money market assets and funds sold $1,002 $2 0.40%
Investment securities:
Available for sale
Taxable 258,864 5,424 4.19%
Tax-exempt (1) 216,840 7,856 7.25%
Held to maturity
Taxable 455,043 10,010 4.40%
Tax-exempt (1) 556,552 17,269 6.21%
Loans:
Commercial:
Taxable 312,763 11,607 7.46%
Tax-exempt (1) 214,111 6,972 6.55%
Commercial real estate 847,149 29,925 7.10%
Real estate construction 86,163 3,073 7.17%
Real estate residential 473,970 11,417 4.82%
Consumer 524,208 15,372 5.90%
--------------------------
Total loans (1) 2,458,364 78,366 6.41%
--------------------------
Total earning assets (1) 3,946,665 118,927 6.05%
Other assets 398,965
-------------
Total assets $4,345,630
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,193,262 $-- --
Savings and interest-bearing
transaction 1,313,004 3,233 0.50%
Time less than $100,000 194,879 2,944 3.04%
Time $100,000 or more 496,934 6,475 2.62%
--------------------------
Total interest-bearing deposits 2,004,817 12,652 1.27%
Short-term borrowed funds 639,410 7,406 2.29%
Debt financing and notes payable 36,739 1,156 6.29%
--------------------------
Total interest-bearing liabilities 2,680,966 21,214 1.58%
Other liabilities 68,134
Shareholders' equity 403,268
-------------
Total liabilities and shareholders' equity $4,345,630
=============
Net interest spread (1)(2) 4.47%
Net interest income and interest margin (1) (3) $97,713 4.97%
==========================
(1) Interest and rates calculated on a fully taxable equivalent basis using
the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on earning assets
minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by calculating the difference between
interest income and expense (annualized), divided by the average balance of
earning assets.
Page 20
For the six months ended
June 30, 2007
---------------------------------------
Interest Rates
Average Income/ Earned/
Balance Expense Paid
---------------------------------------
Assets:
Money market assets and funds sold $580 $3 1.04%
Investment securities:
Available for sale
Taxable 371,992 7,989 4.30%
Tax-exempt (1) 235,740 8,704 7.38%
Held to maturity
Taxable 567,553 12,255 4.32%
Tax-exempt (1) 572,407 17,613 6.15%
Loans:
Commercial:
Taxable 319,249 13,597 8.59%
Tax-exempt (1) 230,181 7,374 6.46%
Commercial real estate 892,261 31,739 7.17%
Real estate construction 71,970 3,606 10.10%
Real estate residential 499,931 11,837 4.74%
Consumer 504,493 15,183 6.07%
--------------------------
Total loans (1) 2,518,085 83,336 6.67%
--------------------------
Total earning assets (1) 4,266,357 129,900 6.12%
Other assets 424,650
-------------
Total assets $4,691,007
=============
Liabilities and shareholders' equity:
Deposits:
Noninterest bearing demand $1,269,036 $-- --
Savings and interest-bearing
transaction 1,427,477 3,912 0.55%
Time less than $100,000 215,355 3,485 3.26%
Time $100,000 or more 490,680 11,360 4.67%
--------------------------
Total interest-bearing deposits 2,133,512 18,757 1.77%
Short-term borrowed funds 773,116 17,014 4.38%
Debt financing and notes payable 36,887 1,156 6.27%
--------------------------
Total interest-bearing liabilities 2,943,515 36,927 2.51%
Other liabilities 66,665
Shareholders' equity 411,791
-------------
Total liabilities and shareholders' equity $4,691,007
=============
Net interest spread (1)(2) 3.61%
Net interest income and interest margin (1) (3) $92,973 4.38%
==========================
(1) Interest and rates calculated on a fully taxable equivalent basis using
the current statutory federal tax rate.
(2) Net interest spread represents the average yield earned on earning assets
minus the average rate paid on interest-bearing liabilities.
(3) Net interest margin is computed by calculating the difference between
interest income and expense (annualized), divided by the average balance of
earning assets.
Page 21
Summary of Changes in Interest Income and Expense due to
Changes in Average Asset & Liability Balances and Yields Earned & Rates Paid
The following tables set forth a summary of the changes in interest income and
interest expense due to changes in average asset and liability balances
(volume) and changes in average interest rates for the periods indicated.
Changes not solely attributable to volume or rates have been allocated in
proportion to the respective volume and rate components (dollars in
thousands).
Three months ended June 30, 2008
compared with three months
ended June 30, 2007
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold $1 ($2) ($1)
Investment securities:
Available for sale
Taxable (1,575) (32) (1,607)
Tax-exempt (1) (377) 12 (365)
Held to maturity
Taxable (1,281) 121 (1,160)
Tax-exempt (1) (272) 116 (156)
Loans:
Commercial:
Taxable (179) (1,065) (1,244)
Tax-exempt (1) (256) 101 (155)
Commercial real estate (752) (80) (832)
Real estate construction 149 (882) (733)
Real estate residential (324) 103 (221)
Consumer 105 (389) (284)
---------------------------------------
Total loans (1) (1,257) (2,212) (3,469)
Total decrease in interest ---------------------------------------
and fee income (1) (4,761) (1,997) (6,758)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction (123) (405) (528)
Time less than $100,000 (153) (244) (397)
Time $100,000 or more (40) (3,230) (3,270)
---------------------------------------
Total interest-bearing deposits (316) (3,879) (4,195)
---------------------------------------
Short-term borrowed funds (2,011) (4,224) (6,235)
Debt financing and notes payable (3) 3 0
---------------------------------------
Total decrease in interest expense (2,330) (8,100) (10,430)
---------------------------------------
(Decrease) increase in Net Interest Income (1) ($2,431) $6,103 $3,672
=======================================
(1) Amounts calculated on a fully taxable equivalent basis using the current
statutory federal tax rate.
Page 22
Six months ended June 30, 2008
compared with six months
ended June 30, 2007
---------------------------------------
Volume Rate Total
---------------------------------------
Interest and fee income:
Money market assets and funds sold $1 ($2) ($1)
Investment securities:
Available for sale
Taxable (2,372) (193) ($2,565)
Tax-exempt (1) (679) (169) ($848)
Held to maturity
Taxable (2,464) 219 ($2,245)
Tax-exempt (1) (471) 127 ($344)
Loans:
Commercial:
Taxable (211) (1,779) ($1,990)
Tax-exempt (1) (499) 97 ($402)
Commercial real estate (1,496) (318) ($1,814)
Real estate construction 641 (1,174) ($533)
Real estate residential (606) 186 ($420)
Consumer 643 (454) $189
---------------------------------------
Total loans (1) (1,528) (3,442) (4,970)
Total decrease in interest ---------------------------------------
and fee income (1) (7,513) (3,460) (10,973)
---------------------------------------
Interest expense:
Deposits:
Savings and interest-bearing
transaction (285) (394) ($679)
Time less than $100,000 (306) (235) ($541)
Time $100,000 or more 178 (5,063) ($4,885)
---------------------------------------
Total interest-bearing deposits (413) (5,692) (6,105)
---------------------------------------
Short-term borrowed funds (2,525) (7,083) ($9,608)
Debt financing and notes payable (1) 1 $0
---------------------------------------
Total decrease in interest expense (2,939) (12,774) (15,713)
---------------------------------------
(Decrease) increase in Net Interest Income (1) ($4,574) $9,314 $4,740
=======================================
(1) Amounts calculated on a fully taxable equivalent basis using the current
statutory federal tax rate.
Page 23
Provision for Credit Losses
The Company manages credit costs by consistently enforcing conservative
underwriting and administration procedures and aggressively pursuing
collection efforts with troubled debtors. The Company provided $600 thousand
for loan losses in the second quarter of 2008, compared with $75 thousand in
the second quarter of 2007. For the first six months of 2008 and 2007, $1.2
million and $150 thousand were provided in each respective period. The
provision reflects management's assessment of credit risk in the loan
portfolio for each of the periods presented. For further information regarding
net credit losses and the allowance for credit losses, see the "Classified
Assets" section of this report.
Noninterest Income
The following table summarizes the components of noninterest income for the
periods indicated (dollars in thousands).
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------
Service charges on deposit accounts $7,529 $7,716 $14,825 $15,244
Merchant credit card fees 2,712 2,768 5,292 5,217
Debit card fees 978 960 1,882 1,856
ATM fees and interchange 763 714 1,481 1,391
Other service fees 536 489 1,022 989
Financial services commissions 274 363 504 673
Official check issuance income 35 314 125 625
Trust fees 377 304 680 641
Mortgage banking income 27 33 67 62
Securities impairment (18,178) 0 (18,178) 0
Gain on sale of Visa common stock 0 0 5,698 0
Life insurance gains 0 0 0 822
Other noninterest income 1,104 1,039 2,137 2,458
----------------------------------------------------
Total ($3,843) $14,700 $15,535 $29,978
====================================================
Noninterest income for the second quarter of 2008 decreased by $18.5 million
from the same period in 2007 mainly due to the $18.2 million writedown of
FHLMC and FNMA preferred stock. During the second quarter of 2008, the Company
began issuing its own cashier's checks rather than use a vendor which paid the
Company fees based on the availability of funds while the cashier's checks
remained outstanding ("float"). By issuing its own cashier's checks, the
Company uses the related float as a source of funding and reduces its interest
expense. Such vendor fees were $279 thousand lower in the second quarter of
2008 compared with the same period of 2007. Service charges on deposit
accounts declined $187 thousand or 2.4% primarily due to decreases in
overdraft fees, returned item charges and service charges on retail and
business checking accounts (down $109 thousand).
In the first half of 2008, noninterest income decreased $14.4 million compared
with the same period of the previous year. Noninterest income for the 2008
period included the $18.2 million impairment charge and $5.7 million in
securities gains from the redemption of Visa Class B common stock as part of
Visa's initial public offering. Noninterest income for the six months of 2007
included an $822 thousand gain on company-owned insurance. Official check
issuance income declined $500 thousand because the Company began issuing its
own cashier's checks rather than use an outside vendor as mentioned above.
Service charges on deposit accounts decreased $419 thousand or 2.7% mainly due
to declines in overdraft fees, returned item charges and retail and business
checking account service fees (down $206 thousand). Financial services
commissions fell $169 thousand or 25.1%. Other noninterest income decreased
$321 thousand or 13.1% primarily due to a $260 thousand decline in interest
recoveries on charged-off loans.
Page 24
Noninterest Expense
The following table summarizes the components of noninterest expense for the
periods indicated (dollars in thousands).
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------
Salaries and related benefits $13,065 $12,622 $26,049 $25,189
Occupancy 3,443 3,342 6,833 6,633
Data processing services 2,105 1,543 4,225 3,066
Equipment 1,001 1,147 1,922 2,284
Amortization of intangibles 788 893 1,646 1,868
Courier service 824 857 1,653 1,705
Professional fees 683 409 1,219 904
Postage 390 396 773 806
Telephone 346 354 681 714
Stationery and supplies 285 269 564 583
Customer checks 247 228 478 476
Operational losses 196 171 380 331
Loan expense 233 171 403 338
Advertising/public relations 292 264 469 491
Correspondent Service Charges 151 220 320 445
Visa litigation expense 0 0 (2,338) 0
Other noninterest expense 2,288 1,820 4,116 3,537
----------------------------------------------------
Total $26,337 $24,706 $49,393 $49,370
====================================================
Average full time equivalent staff 892 910 889 901
Noninterest expense to revenues (FTE) 57.39% 40.66% 43.61% 40.15%
Noninterest expense rose by $1.6 million or 6.6% in the second quarter of 2008
compared with the same period in 2007. Data processing service costs were $562
thousand or 36.4% higher due to conversion of the Company's item processing
function to an outside vendor in the third quarter of 2007. Salaries and
related benefits increased $443 thousand or 3.5%, mainly due to annual merit
increases granted to continuing staff and increases in payroll taxes, stock
based compensation and workers compensation. Professional fees increased $274
thousand mostly due to higher legal fees. Occupancy costs increased $101
thousand or 3.0%. Other noninterest expense rose by $468 thousand or 25.7%
largely due to increases in insurance costs and amortization of low-income
housing investments as tax benefits are realized. The above increases were
partially reduced by decreases in equipment expense (down $146 thousand or
12.7%) and amortization of intangible assets (down $105 thousand or 11.8%).
In the first six months of 2008, noninterest expense increased $23 thousand
compared with the corresponding period of 2007. The first six months of 2008
included a reversal of the $2.3 million accrual for Visa related litigation,
which was reversed with the funding of a litigation escrow as a part of the
Visa IPO. Data processing service costs were higher by $1.2 million or 37.8%
due to conversion of the Company's item processing function to an outside
vendor. Salaries and related benefits increased $860 thousand or 3.4% mainly
due to annual merit increases granted to continuing staff and increases in
payroll taxes, workers compensation and company match for the 401(k) plan.
Professional fees increased $315 thousand or 34.8% primarily due to higher
legal fees, partially offset by lower audit fees. Occupancy costs increased
$200 thousand or 3.0%. Other noninterest expense rose by $579 thousand or
16.4% due to higher insurance costs and amortization of low-income housing
investments as tax benefits are realized. Other categories of expense
decreased from the first six months of 2007, offsetting the increases outlined
above. Equipment expense declined $362 thousand or 15.8% mostly due to reduced
depreciation costs. Amortization of intangible assets decreased $222 thousand
or 11.9%. Correspondent service charges were lower by $125 thousand or 28.1%.
Provision for Income Tax
During the second quarter of 2008, the Company recorded income tax provision
(FTE) of $6.7 million compared with $13.6 million for the second quarter of
2007. The current quarter provision represents an effective tax rate of 35.6%,
compared to 37.9% for the second quarter of 2007 largely as a result of the
$7.7 million tax benefit of the impairment charge and higher tax credits from
low-income housing investments.
On a year-to-date basis, the income tax provision (FTE) was $23.7 million for
2008 compared with $27.5 million for 2007. The effective tax rate of 37.8% for
the first half of 2008 compared with 37.5% for the same period of 2007. The
tax provision for the first six months of 2008 included the $7.7 million tax
benefit of the impairment charge, and higher tax credits from low-income
housing investments, partially offset by an increase due to the higher tax
rate for the income related to the Visa IPO. The tax provision in the same
period of 2007 reflected the tax-free nature of $822 thousand in life
insurance proceeds, higher dividend received deductions and lower
non-deductible life insurance premiums.
Page 25
Classified Assets
The Company closely monitors the markets in which it conducts its lending
operations and continues its strategy to control exposure to loans with high
credit risk and to increase diversification of earning assets. Loan reviews
are performed using grading standards and criteria similar to those employed
by bank regulatory agencies. Loans receiving lesser grades fall under the
"classified" category, which includes all nonperforming and potential problem
loans, and receive an elevated level of attention to ensure collection. Other
real estate owned is recorded at the lower of cost or market value less
estimated disposition costs.
The following is a summary of classified loans and other real estate owned on
the dates indicated (dollars in thousands):
At June 30, At
--------------------------December 31,
2008 2007 2007
---------------------------------------
Classified loans $33,546 $22,498 $24,419
Other real estate owned 920 613 613
---------------------------------------
Classified loans and other real estate owned $34,466 $23,111 $25,032
=======================================
Allowance for loan losses /
classified loans 152% 238% 215%
Classified loans include loans graded "substandard", "doubtful" and "loss"
using regulatory guidelines. At June 30, 2008, $33.0 million of loans or 98.4%
of total classified loans are graded "substandard". Such substandard loans
accounted for 1.4% of total gross loans at June 30, 2008. Classified loans at
June 30, 2008, increased $11.0 million from a year ago. The increase resulted
from 19 loan downgrades, partially offset by seven loan payoffs and five
upgrades. A $9.1 million increase in classified loans from December 31, 2007
was generally due to 14 downgrades, partially offset by four upgrades and four
payoffs.
One of the classified loans is a construction loan relationship with $10.3
million outstanding at June 30, 2008. The loan collateral, located north of
Sacramento, California, is comprised of land purchased for development and
construction of approximately 110 residential properties and 17 completed
residential properties. The borrower has marketed and received purchase offers
on 13 of the completed properties. Subsequent to June 30, 2008, the loan
relationship was paid down by $232 thousand with the close of escrow on one
property. The borrower also subsequently received a purchase offer on an
additional property. The number of purchase offers remains at thirteen. These
pending sales are subject to conditions typically present in similar
transactions, including potential buyers obtaining financing. The Company is
not offering financing for these pending transactions. If all of these pending
sales are successful, the Company estimates the outstanding balance on the
loan relationship will be reduced by $3.2 million. The Company recognized a
charge-off of $783 thousand during the second quarter 2008 as the anticipated
sales price of the residential units is less than the related loan balance.
Management is aggressively pursuing collection of the entire loan
relationship. The construction loan relationship was placed on non-accrual
status during the second quarter 2008 and included in non-accrual loans at
June 30, 2008.
Other real estate owned was $920 thousand, $613 thousand and $613 thousand at
June 30, 2008, December 31, 2007 and June 30, 2007, respectively. The increase
in OREO resulted from foreclosure of residential real estate loan collateral.
Nonperforming Loans and Other Real Estate Owned
Nonperforming loans include nonaccrual loans and loans 90 days past due as to
principal or interest and still accruing. Loans are placed on nonaccrual
status when they become 90 days or more delinquent, unless the loan is well
secured and in the process of collection. Interest previously accrued on loans
placed on nonaccrual status is charged against interest income. In addition,
loans secured by real estate with temporarily impaired values and commercial
loans to borrowers experiencing financial difficulties are placed on
nonaccrual status even though the borrowers continue to repay the loans as
scheduled. Such loans are classified as "performing nonaccrual" and are
included in total nonperforming assets. When the ability to fully collect
nonaccrual loan principal is in doubt, cash payments received are applied
against the principal balance of the loan until such time as full collection
of the remaining recorded balance is expected. Any subsequent interest
received is recorded as interest income on a cash basis.
Page 26
The following is a summary of nonperforming loans and other real estate owned
on the dates indicated (dollars in thousands):
At June 30, At
--------------------------December 31,
2008 2007 2007
---------------------------------------
Performing nonaccrual loans $28 $1,898 $1,688
Nonperforming nonaccrual loans 11,713 3,140 3,164
---------------------------------------
Total nonaccrual loans 11,741 5,038 4,852
Loans 90 days past due and
still accruing 254 179 297
---------------------------------------
Total nonperforming loans 11,995 5,217 5,149
Other real estate owned 920 613 613
---------------------------------------
Total $12,915 $5,830 $5,762
=======================================
As a percentage of total loans 0.53% 0.23% 0.23%
Nonaccrual loans increased $6.9 million during the six months ended June 30,
2008. Twenty loans comprised the $11.7 million nonaccrual loans as of June 30,
2008. Eight of those loans were on nonaccrual status throughout the first half
2008, while twelve of the loans were placed on nonaccrual status during the
six months ended June 30, 2008. The increase in nonperforming nonaccrual loans
is primarily due to placing the construction loan relationship described in
the "Classified Assets" section on nonaccrual status. The reduction in
performing nonaccrual loans is primarily due to returning two commercial real
estate loans to accrual status based upon the payment history, payment status,
and improved financial condition of the borrowers. The Company actively
pursues full collection of nonaccrual loans.
The Company's residential real estate loan underwriting standards for first
mortgages limit the loan amount to no more than 80 percent of the appraised
value of the property serving as collateral for the loan at the time of
origination, and require verification of income of the borrower(s). The
Company had no "sub-prime" loans as of June 30, 2008, December 31, 2007 and
June 30, 2007. Of the loans 90 days past due and still accruing at June 30,
2008, none were residential real estate loans and $92 thousand were automobile
loans. Delinquent residential real estate and automobile loans on accrual
status were as follows ($ in thousands):
At June 30, At
--------------------------December 31,
2008 2007 2007
---------------------------------------
Residential real estate loans:
------------------------------
30-89 days delinquent:
Dollar amount $1,585 $728 $2,761
Percentage of total residential real estate loans 0.34% 0.15% 0.57%
90 or more days delinquent:
Dollar amount $-0- $-0- $-0-
Percentage of total residential real estate loans 0.00% 0.00% 0.00%
Automobile loans:
-----------------
30-89 days delinquent:
Dollar amount $2,535 $2,053 $2,872
Percentage of total automobile loans 0.55% 0.44% 0.61%
90 or more days delinquent:
Dollar amount $92 $106 $253
Percentage of total automobile loans 0.02% 0.02% 0.05%
The Company had no restructured loans as of June 30, 2008, June 30, 2007 and
December 31, 2007.
The amount of gross interest income that would have been recorded for
nonaccrual loans for the three and six month periods ended June 30, 2008, if
all such loans had performed in accordance with their original terms, was $177
thousand and $282 thousand, respectively, compared to $109 thousand and $219
thousand, respectively, for the second quarter and the first half of 2007.
The amount of interest income that was recognized on nonaccrual loans from all
cash payments, including those related to interest owed from prior years, made
during the three and six months ended June 30, 2008, totaled $204 thousand and
$265 thousand, respectively, compared to $150 thousand and $269 thousand,
respectively, for the comparable periods in 2007. These cash payments
represent annualized yields of 7.00% and 6.16%, respectively, for the second
quarter and the first six months of 2008 compared to 12.60% and 11.38%,
respectively, for the second quarter and the first half of 2007.
No cash payments were received during the second quarter of 2008 and 2007
which were applied against the book balance of nonaccrual loans outstanding at
June 30, 2008 and 2007, respectively. No cash payments were received for the
six months ended June 30, 2008 which were applied against the book balance of
nonaccrual loans outstanding compared with $4 thousand for the corresponding
period in 2007.
Page 27
Management believes the overall credit quality of the loan portfolio continues
to be stable; however, nonperforming assets could fluctuate from period to
period. The performance of any individual loan can be affected by external
factors such as collateral values, the interest rate environment, economic
conditions or factors particular to the borrower. No assurance can be given
that additional increases in nonperforming loans and other real estate owned
will not occur in the future.
Allowance for Credit Losses
The following table summarizes the provision for credit losses, net credit
losses and allowance for credit losses for the periods indicated (dollars in
thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2008 2007 2008 2007
----------------------------------------------------
Balance, beginning of period $55,527 $58,582 $55,799 $59,023
Provision for credit losses 600 75 1,200 150
Loans charged off (2,208) (2,244) (3,745) (3,488)
Recoveries of previously
charged off loans 338 753 1,003 1,481
----------------------------------------------------
Net credit losses (1,870) (1,491) (2,742) (2,007)
----------------------------------------------------
Balance, end of period $54,257 $57,166 $54,257 $57,166
====================================================
Components:
Allowance for loan losses $50,964 $53,473 $50,964 $53,473
Reserve for unfunded credit commitments 3,293 3,693 3,293 3,693
----------------------------------------------------
Allowance for credit losses $54,257 $57,166 $54,257 $57,166
====================================================
Allowance for loan losses /
loans outstanding 2.10% 2.12%
Net credit losses rose in the three and six months ended June 30, 2008
compared to the three and six months ended June 30, 2007 due to lower
recoveries on commercial and automobile loans previously charged off.
Annualized net loan losses to average loans rose to 0.31% percent in
the three months ended June 30, 2008, compared to 0.24 percent in the three
months ended June 30, 2007. Management does not anticipate an increase in net
charge-off experience in the last six months of 2008 as compared to the first
six months of 2008. However, no assurance can be given that higher levels of
net charge-offs will not occur. Management continues to follow conservative
credit underwriting policies and practices, and aggressively pursues
collection of classified loans and recovery of recognized loan losses.
The Company's allowance for credit losses is maintained at a level considered
adequate to provide for losses that can be estimated based upon specific and
general conditions. These include conditions unique to individual borrowers,
as well as overall credit loss experience, the amount of past due,
nonperforming loans and classified loans, recommendations of regulatory
authorities, prevailing economic conditions and other factors. A portion of
the allowance is specifically allocated to impaired loans whose full
collectibility is uncertain. Such allocations are determined by Management
based on loan-by-loan analyses. A second allocation is based in part on
quantitative analyses of historical credit loss experience, in which
criticized and classified credit balances identified through an independent
internal credit review process are analyzed using a linear regression model to
determine standard loss rates. The results of this analysis are applied to
current criticized and classified loan balances to allocate the reserve to the
respective segments of the loan portfolio. In addition, loans with similar
characteristics not usually criticized using regulatory guidelines are
analyzed based on the historical loss rates and delinquency trends, grouped by
the number of days the payments on these loans are delinquent. Last,
allocations are made to non-criticized and classified commercial loans and
residential real estate loans based on historical loss rates, and other
statistical data. The remainder of the allowance is considered to be
unallocated. The unallocated allowance is established to provide for probable
losses that have been incurred as of the reporting date but not reflected in
the allocated allowance. It addresses additional qualitative factors
consistent with Management's analysis of the level of risks inherent in the
loan portfolio, which are related to the risks of the Company's general
lending activity. Included in the unallocated allowance is the risk of losses
that are attributable to national or local economic or industry trends which
have occurred but have not yet been recognized in past loan charge-off history
(external factors). The external factors evaluated by the Company include:
economic and business conditions, external competitive issues, and other
factors. Also included in the unallocated allowance is the risk of losses
attributable to general attributes of the Company's loan portfolio and credit
administration (internal factors). The internal factors evaluated by the
Company include: loan review system, adequacy of lending Management and staff,
loan policies and procedures, problem loan trends, concentrations of credit,
and other factors. By their nature, these risks are not readily allocable to
any specific loan category in a statistically meaningful manner and are
difficult to quantify with a specific number. Management assigns a range of
estimated risk to the qualitative risk factors described above based on
Management's judgment as to the level of risk, and assigns a quantitative risk
factor from the range of loss estimates to determine the appropriate level of
the unallocated portion of the allowance. Management considers the $54.3
million allowance for credit losses to be adequate as a reserve against losses
as of June 30, 2008.
Page 28
The following table presents the allocation of the allowance for credit losses:
Allocation of the Allowance for Credit Losses
At June 30, At December 31,
2008 2007
----------------------------------------------------
Allocation Loans as Allocation Loans as
of the Percent of the Percent
Allowance of Total Allowance of Total
(dollars in thousands) Balance Loans Balance Loans
----------------------------------------------------
Commercial $26,000 57% $27,233 56%
Real estate construction 5,247 3% 5,403 4%
Real estate residential 371 19% 388 19%
Consumer 4,720 21% 4,626 21%
Unallocated portion 17,919 -- 18,149 --
----------------------------------------------------
Total $54,257 100% $55,799 100%
====================================================
The allocation to loan portfolio segments changed from December 31, 2007 to
June 30, 2008. The decrease in allocation to commercial loans reflects a
decrease in criticized commercial loans.
The unallocated portion of the allowance for credit losses declined $230
thousand from December 31, 2007 to June 30, 2008. The unallocated allowance is
established to provide for probable losses that have been incurred, but not
reflected in the allocated allowance. At December 31, 2007 and June 30, 2008,
Management's evaluations of the unallocated portion of the allowance for
credit losses attributed significant risk levels to developing economic and
business conditions ($4.0 million and $3.9 million, respectively), external
competitive issues ($2.0 million and $1.9 million, respectively), internal
credit administration considerations ($4.2 million and $3.2 million,
respectively), and delinquency and problem loan trends ($4.2 million and $4.1
million, respectively). The change in the amounts allocated to the above
qualitative risk factors was based upon Management's judgment, review of
trends in its loan portfolio, levels of the allowance allocated to portfolio
segments, and current economic conditions in its marketplace. Based on
Management's analysis and judgment, the amount of the unallocated portion of
the allowance for credit losses was $18.1 million at December 31, 2007,
compared to $17.9 million at June 30, 2008.
Asset/Liability and Market Risk Management
Asset/liability management involves the evaluation, monitoring and management
of interest rate risk, market risk, liquidity and funding. The fundamental
objective of the Company's management of assets and liabilities is to maximize
its economic value while maintaining adequate liquidity and a conservative
level of interest rate risk.
Interest Rate Risk
Interest rate risk is the most significant market risk affecting the Company.
Interest rate risk results from many factors. Assets and liabilities may
mature or reprice at different times. Assets and liabilities may reprice at
the same time but by different amounts. Short-term and long-term market
interest rates may change by different amounts. The remaining maturity of
various assets or liabilities may shorten or lengthen as interest rates
change. In addition, interest rates may have an impact on loan demand, credit
losses, and other sources of earnings such as account analysis fees on
commercial deposit accounts, official check fees and correspondent bank
service charges.
In adjusting the Company's asset/liability position, Management attempts to
manage interest rate risk while enhancing net interest margin and net interest
income. At times, depending on expected increases or decreases in general
interest rates, the relationship between long and short term interest rates,
market conditions and competitive factors, Management may adjust the Company's
interest rate risk position in order to manage its net interest margin and net
interest income. The Company's results of operations and net portfolio values
remain subject to changes in interest rates and to fluctuations in the
difference between long and short term interest rates.
The Company's asset and liability position remains slightly "liability
sensitive," with a greater amount of interest-bearing liabilities subject to
immediate and near-term interest rate changes relative to earning assets. As a
result, the FOMC's recent reductions in the federal funds target rate
(charged for short-term inter-bank borrowings) and the related decline in U.S.
Treasury bill rates has improved the Company's net interest margin in the
first six months of 2008. The FOMC has not changed the federal funds target
rate since April 30, 2008 and futures markets indicate an expectation the FOMC
will not change the rate for the remainder of 2008. As a result, the Company's
net interest margin may not continue to benefit from additional reductions in
short-term interest rates. The duration of the Company's earning assets and
funding has not changed by a meaningful amount during the first six months of
2008. Management continues to monitor the interest rate environment as well as
economic conditions and other factors it deems relevant in managing the
Company's exposure to interest rate risk.
Page 29
Management assesses interest rate risk by comparing the Company's most likely
earnings plan with various earnings models using many interest rate scenarios
that differ in the direction of interest rate changes, the degree of change
over time, the speed of change and the projected shape of the yield curve. For
example, using the current composition of the Company's balance sheet and
assuming a decrease of 100 bp in the federal funds rate and a decrease of 10
bp in the 10 year Constant Maturity Treasury Bond yield during the same
period, earnings are estimated to improve 0.6% over the Company's most likely
net income plan for the twelve months ending June 30, 2009. Conversely, using
the current composition of the Company's balance sheet and assuming an
increase of 100 bp in the federal funds rate and an increase of 50 bp in the
10 year Constant Maturity Treasury Bond yield during the same period,
estimated earnings at risk would be approximately 2.9% of the Company's most
likely net income plan for the twelve months ending June 30, 2009. Simulation
estimates depend on, and will change with, the size and mix of the actual and
projected balance sheet at the time of each simulation. Management is
currently deploying tactics to reduce the "liability sensitivity" of the
Company's balance sheet to a more "neutral" condition where changes in
interest rates result in less significant changes in earnings. The Company
does not currently engage in trading activities or use derivative instruments
to control interest rate risk, even though such activities may be permitted
with the approval of the Company's Board of Directors.
Market Risk - Equity Markets
Equity price risk can affect the Company. As an example, any preferred or
common stock holdings, as permitted by banking regulations, can fluctuate in
value. Management regularly assesses the extent and duration of any declines
in market value, the causes of such declines, the likelihood of a recovery in
market value, and its intent to hold securities until a recovery in value
occurs. Declines in value of preferred or common stock holdings that are
deemed "other than temporary" could result in loss recognition in the
Company's income statement.
Fluctuations in the Company's common stock price can impact the Company's
financial results in several ways. First, the Company has regularly
repurchased and retired its common stock; the market price paid to retire the
Company's common stock can affect the level of the Company's cash flows and
shares outstanding for purposes of computing earnings per share. Second, the
Company's common stock price impacts the number of dilutive equivalent shares
used to compute diluted earnings per share. Third, fluctuations in the
Company's common stock price can motivate holders of options to purchase
Company common stock through the exercise of such options thereby increasing
the number of shares outstanding. Finally, the amount of compensation expense
associated with share based compensation fluctuates with changes in and the
volatility of the Company's common stock price.
Market Risk - Other
Other types of market risk, such as foreign currency exchange risk and
commodity price risk, are not significant in the normal course of the
Company's business activities.
Liquidity and Funding
The Company's routine operating sources of liquidity are investment
securities, consumer and other loans, deposits, and other borrowed funds.
During the first six months of 2008, investment securities provided $206.3
million in liquidity from paydowns and maturities, and loans provided $68.8
million in liquidity from scheduled payments and maturities, net of loan
fundings. The Company projects $124 million in additional liquidity from
investment security paydowns and maturities in the six months ended December
31, 2008.
At June 30, 2008, indirect automobile loans totaled $459.9 million, which were
experiencing stable monthly principal payments of approximately $19.6 million
during the last three months. During the six months ended June 30, 2008, a
portion of the liquidity provided by investment securities and loans provided
funds to meet a net reduction in deposits totaling $101.3 million. The
remaining liquidity was used to reduce higher-costing borrowed funds,
primarily federal funds purchased which declined $247.0 million. During the
first six months of 2007, investment securities provided $116.1 million in
liquidity from paydowns and maturities, and loans provided $8.8 million in
liquidity from scheduled payments and maturities, net of loan fundings. During
the six months ended June 30, 2007, a portion of the liquidity provided by
investment securities, loans and a $77.3 million increase in short term
borrowings provided funds to meet a net reduction in deposits totaling $181.7
million.
The Company held $1.4 billion in total investment securities at June 30, 2008.
Under certain deposit, borrowing and other arrangements, the Company must hold
investment securities as collateral. At June 30, 2008, such collateral
requirements totaled approximately $907 million. At June 30, 2008, $391.0
million of the Company's investment securities were classified as
"available-for-sale", and as such, could provide additional liquidity if sold,
subject to the Company's ability to meet continuing collateral requirements.
At June 30, 2008, $430.3 million in collateralized mortgage obligations
("CMOs") and mortgage backed securities ("MBSs") were held in the Company's
investment portfolios. None of the CMOs or MBSs are backed by sub-prime
mortgages. All of the CMOs and MBSs are rated AAA based on their subordination
structures without reliance on monoline insurance. Other than nominal amounts
of FHLMC/ FNMA MBSs purchased for Community Reinvestment Act investment
purposes, the Company has not purchased a CMO or MBS since November 2005. The
CMOs and MBSs have been experiencing stable principal paydowns of
approximately $10 million per month during the last three months. In addition,
at June 30, 2008, the Company had customary lines for overnight borrowings
from other financial institutions in excess of $700 million and a $35 million
line of credit, under which $374.0 million and $-0- million were outstanding,
respectively. Additionally, the Company has access to borrowing from the
Federal Reserve. The Company's short-term debt rating from Fitch Ratings is
F1. Management expects the Company can access short-term debt financing if
Page 30
desired. The Company's long-term debt rating from Fitch Ratings is A with a
stable outlook. Management is confident the Company could access additional
long-term debt financing if desired. In Management's judgment, the Company's
liquidity position is strong and asset liquidations or additional long-term
debt are considered unnecessary to meet the ongoing liquidity needs of the
Company.
The Company's profitability during the first six months of 2008 and 2007
contributed to substantial operating cash flows of $54.5 million and $47.3
million, respectively. In the first half of 2008, profitability and retained
earnings from prior years provided cash for $29.7 million of Company stock
repurchases and $20.0 million in shareholder dividends. Similarly, in 2007,
profitability and retained earnings from prior years provided cash for $20.6
million in shareholder dividends and $43.5 million utilized to repurchase
common stock.
It is anticipated that loan demand will be moderate to weak during the
remainder of 2008, although such demand will be dictated by economic and
competitive conditions. The Company aggressively solicits non-interest bearing
demand deposits and money market checking deposits, which are the least
sensitive to interest rates. The growth of deposit balances is subject to
heightened competition, the success of the Company's sales efforts, delivery
of superior customer service and market conditions. The recent series of
reductions in the federal funds rate resulted in declining short-term interest
rates, which could impact deposit volumes in the future. Depending on economic
conditions, interest rate levels, and a variety of other conditions, deposit
growth may be used to fund loans, purchase investment securities or to
reduce short-term borrowings. However, due to concerns such as uncertainty in
the general economic environment, competition, possible terrorist attacks and
political uncertainty, loan demand and levels of customer deposits are not
certain. Shareholder dividends and share repurchases are expected to continue
subject to the Board's discretion and continuing evaluation of capital levels,
earnings, asset quality, debt retirement and other factors.
Westamerica Bancorporation ("the Parent Company") is a separate entity and
apart from Westamerica Bank ("the Bank") and must provide for its own
liquidity. In addition to its operating expenses, the Parent Company is
responsible for the payment of dividends declared for its shareholders, and
interest and principal on outstanding debt. Substantially all of the Parent
Company's revenues are obtained from subsidiary service fees and dividends.
Payment of such dividends to the Parent Company by the Bank is limited under
California law. The amount that can be paid in any calendar year, without
prior approval from the state regulatory agency, cannot exceed the net profits
(as defined) for the preceding three calendar years less dividends paid. The
Company believes that such restriction will not have an impact on the Parent
Company's ability to meet its ongoing cash obligations.
Page 31
Capital Resources
The Company has historically generated high levels of earnings, which provides
a means of raising capital. The Company's net income as a percentage of
average shareholders' equity ("return on equity" or ROE") has been 23.4
percent in 2006, 22.1 percent in 2007 and 19.4 percent (annualized) in the
first six months of 2008. The Company also raises capital as employees
exercise stock options, which are awarded as a part of the Company's executive
compensation programs and efforts to reinforce shareholders' interests in the
Management of the Company. Capital raised through the award and exercise of
stock options totaled $18.2 million in 2006, $14.6 million in 2007 and $20.8
million in the first six months of 2008.
The Company paid dividends totaling $40.7 million in 2006, $40.6 million in
2007, and $20.0 million in the first six months of 2008, which represent
dividends per share of $1.30, $1.36, and $0.69, respectively. The Company's
earnings have historically exceeded dividends paid to shareholders. The amount
of earnings in excess of dividends gives the Company resources to finance
growth and maintain appropriate levels of shareholders' equity. In the absence
of profitable growth opportunities, the Company has repurchased and retired
its common stock as another means to return earnings to shareholders. The
Company repurchased and retired common stock valued at $89.0 million in 2006,
$87.1 million in 2007, and $29.7 million in the first six months of 2008.
The following summarizes the ratios of capital to risk-adjusted assets for the
Company on the dates indicated:
Well-capitalized
At June 30, At Minimum by
------------------------December 31, Regulatory Regulatory
2008 2007 2007 Requirement Definition
---------------------------------------------------------------
Tier I Capital 10.22% 9.51% 9.33% 4.00% 6.00%
Total Capital 11.51% 10.83% 10.64% 8.00% 10.00%
Leverage ratio 7.06% 6.34% 6.32% 4.00% 5.00%
The Company's risk-based capital ratios increased at June 30, 2008, compared
with June 30 and December 31 of 2007, due to a decline in risk-weighted assets
and an increase in regulatory capital.
The following summarizes the ratios of capital to risk-adjusted assets for the
Bank on the dates indicated:
Well-capitalized
At June 30, At Minimum by
------------------------December 31, Regulatory Regulatory
2008 2007 2007 Requirement Definition
---------------------------------------------------------------
Tier I Capital 9.54% 9.76% 9.52% 4.00% 6.00%
Total Capital 11.01% 11.22% 10.98% 8.00% 10.00%
Leverage ratio 6.57% 6.46% 6.41% 4.00% 5.00%
The risk-based capital ratios declined at June 30, 2008, compared with June
30, 2007, due to a decrease in regulatory capital, offset in part by a decline
in risk-weighted assets. The risk-based capital ratios increased at June 30,
2008, compared with December 31, 2007, due to an increase in regulatory
capital and a decrease in risk-weighted assets.
The Company intends to maintain regulatory capital in excess of the highest
regulatory standard, referred to as "well capitalized". The Company routinely
projects its capital levels by analyzing forecasted earnings, credit quality,
securities valuations, shareholder dividends, asset volumes, share repurchase
activity, stock option exercise proceeds, and other factors. Based on current
capital projections the Company expects to maintain regulatory capital levels
exceeding the "well capitalized" standard and pay quarterly dividends to
shareholders of at least $0.35 per share. On July 24, 2008, the Board of
Directors declared a quarterly dividend of $0.35 per share, payable August 15,
2008 to shareholders of record August 4, 2008. No assurance can be given that
changes in capital management plans will not occur.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not currently engage in trading activities or use derivative
instruments to control interest rate risk, even though such activities may be
permitted with the approval of the Company's Board of Directors.
Interest rate risk and equity price risk, as discussed above, are the most
significant market risks affecting the Company. Other types of market risk,
such as foreign currency exchange risk and commodity price risk, are not
significant in the normal course of the Company's business activities.
Item 4. Controls and Procedures
The Company's principal executive officer and principal financial officer have
evaluated the effectiveness of the Company's "disclosure controls and
procedures," as such term is defined in Rule 13a-15(e) of the Securities
Exchange Act of 1934, as amended, as of June 30, 2008. Based upon their
evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective.
Page 32
The evaluation did not identify any change in the Company's internal control
over financial reporting that occurred during the quarter ended June 30, 2008
that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Due to the nature of the banking business, the Bank is at
times party to various legal actions; all such actions are of a
routine nature and arise in the normal course of business of the
Subsidiary Bank.
Item 1A. Risk Factors
In March 2008, the Bush administration outlined a sweeping plan to streamline
financial regulation in the United States. The proposals would consolidate
regulatory agencies and revamp oversight of the financial system. Some of the
proposals would shift regulatory power from states to the federal government.
The proposals would require passage of Congressional legislation. The impact
of these proposals on the future regulation of the Company is uncertain at
this time.
The Federal Deposit Insurance Corporation ("FDIC") insures deposits at FDIC
insured financial institutions up to certain limits. The FDIC charges insured
financial institutions premiums to maintain the Deposits Insurance Fund.
Current economic conditions have increased expectations for bank failures, in
which case the FDIC would take control of failed banks and ensure payment of
deposits up to insured limits using the resources of the Deposit Insurance
Fund. In such case, the FDIC may increase premium assessments to maintain
adequate funding of the Deposit Insurance Fund. An increase in premium
assessments would increase the Company's expenses.
There are no other material changes to the risk factors disclosed in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None
(b) None
(c) Issuer Purchases of Equity Securities
The table below sets forth the information with respect to purchases made by
or on behalf of Westamerica Bancorporation or any "affiliated purchaser" (as
defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of
common stock during the quarter ended June 30, 2008 (in thousands, except per
share data).
(c) (d)
Total Maximum
Number Number
of Shares of Shares
(b) Purchased that May
(a) Average as Part of Yet Be
Total Price Publicly Purchased
Number of Paid Announced Under the
Shares per Plans Plans or
Period Purchased Share or Programs* Programs
-------------------------------------------------------------
April 1
through
April 30 26 $55.23 26 923
-------------------------------------------------------------
May 1
through
May 31 101 55.58 101 822
-------------------------------------------------------------
June 1
through
June 30 45 53.13 45 777
-------------------------------------------------------------
Total 172 $54.89 172 777
=============================================================
* Includes 7 thousand, 4 thousand and 2 thousand shares purchased in April, May
and June, respectively, by the Company in private transactions with the
independent administrator of the Company's Tax Deferred Savings/Retirement Plan
(ESOP). The Company includes the shares purchased in such transactions within
the total number of shares authorized for purchase pursuant to the currently
existing publicly announced program.
Page 33
The Company repurchases shares of its common stock in the open market to
optimize the Company's use of equity capital and enhance shareholder value and
with the intention of lessening the dilutive impact of issuing new shares to
meet stock performance, option plans, and other ongoing requirements.
Shares were repurchased during the first quarter of 2008 pursuant to a program
approved by the Board of Directors on August 23, 2007 authorizing the purchase
of up to 2,000,000 shares of the Company's common stock from time to time
prior to September 1, 2008.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Proxies for the Annual Meeting of shareholders held on April 24,
2008, were solicited pursuant Regulation 14A of the Securities
Exchange Act of 1934. The Report of Inspector of election
indicates that 24,954,515 shares of the Common Stock of the
Company, out of 28,890,389 shares outstanding on the February 25,
2008 record date, were present, in person or by proxy, at the
meeting. There were no "broker non-votes" because the election of
directors is considered "routine" under applicable exchange rules
and therefore, on this matter, brokers were able to vote shares
for which no direction was provided by the beneficial owner. The
following matter was submitted to a vote of the shareholders:
1. - Election of directors:
For Withheld
-------- --------
Etta Allen 24,783,043 171,472
Louis E. Bartolini 24,687,775 266,740
E.Joseph Bowler 24,730,602 223,912
Arthur C. Latno, Jr. 21,888,468 3,066,046
Patrick D. Lynch 24,779,376 175,139
Catherine C. MacMillan 24,732,001 222,514
Ronald A. Nelson 21,713,408 3,241,106
David L. Payne 24,775,025 179,490
Edward B. Sylvester 24,792,688 161,827
Shareholders were to cast their vote for or to withhold their vote.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibit list required by this item is incorporated by reference
to the Exhibit Index filed with this report.
Page 34
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
WESTAMERICA BANCORPORATION
(Registrant)
July 31, 2008 /s/ John "Robert" Thorson
------------- -------------------------
Date John "Robert" Thorson
Senior Vice President
and Chief Financial Officer
(Chief Financial and Accounting Officer)
Page 35
Exhibit Index
Exhibit 31.1: Certification of Chief Executive
Officer pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 31.2: Certification of Chief Financial
Officer pursuant to Securities
Exchange Act Rule 13a-14(a)/15d-14(a)
Exhibit 32.1: Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
Exhibit 32.2: Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002